The Bank of Mom and Dad

What to say when your adult kids ask for financial help

It's hard to know when to cut off the ATM when your children need financial help.

My second child just entered her senior year of college, and after scraping the bottom of her 529 education savings account and an additional bond fund we set up for her, we've paid for her fall semester. Only one problem: She still needs to pay for spring. So we are at a crossroads. Do we dip into our savings and let her start her adult life debt-free? Or put the onus on her?

The desire to help your kids, even at the expense of your own security, is understandable. A 2015 Pew Research Center survey found that 61 percent of Americans with adult children helped out their kids financially in the past 12 months. But sometimes keeping the money for yourself — instead of giving or even lending it to your kids — is exactly what your family needs you to do.

"The best way to help your kids is to never need them to help you," says Bobbi Rebell, author of How to Be a Financial Grownup. For parents in their 50s, the instinct to help out our children can be a real trap; you're probably still employed, making as much as ever, and your kids are just getting started in life. But these need to be your power-saving years. If not, your retirement could be at risk.

Below are the four critical factors to consider. Use them, as we did in the following seven scenarios, to assess whether to say yes or no.

Scenario 1: The Dead Car

Helping your child get back on the road may be a good investment. But make an honest assessment of whether the car is out of commission because he hasn't taken care of it or if he's acted responsibly.

Four Essential Questions to Answer Before Saying 'Yes'

Consider these when you're determining whether to open your wallet to your grown child.

NECESSARY: Will this investment add stability and security to my child's life? Or is it simply a "good-to-have" purchase or investment? (Rate 0 to 5: 0 = entirely optional; 5 = absolutely mandatory)

SHORT TERM: Is this a short-term or onetime cash need, or is it something that could drag on for years? (0 = guaranteed, long-term payouts; 5 = absolutely just one time)

FINANCIALLY SAFE: Is there risk in the investment beyond the cash outlay, such as financial liability on a contract or damage to your credit? (0 = very high levels of personal risk; 5 = no additional risks)

EMOTIONALLY SAFE: Can you lend or give this money without fear of damaging your relationship with your child? Or will it cause tensions or resentments for the people involved? (0 = guaranteed tensions or resentments; 5 = everyone is happy)

SCORING

13 and up: Make the investment

Below 13: Think twice

"You don't want kids to think that you're always the backup and that they can act irresponsibly because you'll be there to catch them if they fall," Rebell says. If that's the case, you need to break that cycle of learned helplessness. Suggest a downshift. If your son chooses to get a used model of the same car, you'll chip in a higher percentage than if he gets a brand-new one. The more financially responsible and realistic he is, the more you give him versus loan him.

And make sure any loan you make comes with a fixed, reliable repayment schedule; it's the best way to avoid relationship strain down the road. "People are most willing to meet obligations at the beginning of the lending process," says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards.

Scoring (see key in sidebar):

Necessary: 3

Financially safe: 4

Short term: 4

Emotionally safe: 4

Total: 15

Scenario 2: The Fairy-tale Wedding

This goes under "very discretionary." "It's money you'll never recoup," says Cary Carbonaro, managing director at United Capital and a personal finance author. In fact, a big wedding might actually undermine your daughter's security. A study of more than 3,000 marriages by economists at Emory University in Atlanta found that women who had a wedding that cost $20,000 or more were 1.6 times more likely to divorce.

"This goes back to hard-core planning. What is feasible?" Blayney asks. "My daughter got married seven years ago, and I gave them a number. The ultimate price was up to them: They could spend more, but it was on them. Or they could spend less and keep the difference."

You can help your daughter by making sure the money is being well spent. Have her price out the wedding, then come to you with a budget breakdown. Ask what the plan is if it goes over budget. Ask her to think about why a huge wedding is important. Really listen. If she wants it, agrees to your terms and you can afford it, write the check and enjoy.

Scoring (see key in sidebar):

Necessary: 0

Financially safe: 4

Short term: 5

Emotionally safe: 3

Total: 12

Scenario 3: The Apartment Lease

This one is truly case by case, but in general you are looking to justify a yes. In many cities a large cash advance is standard operating procedure and your kid needs you. But you have to be circumspect, Rebell says.

"There's your side of the ledger and then his side," she says. "On your side, can you afford to pay if he does not?" If the answer is yes, you move on to his side. Is he responsible enough and, frankly, financially able to pay his rent? If so, then give him the yes. But have a written agreement that spells out the potential consequences. "You and your child both have to understand and agree on what happens if he cannot pay," says Blayney. "You can even ask for a security deposit. And if your child can't afford to pay the lease and you have to take it over, those payments become his debt to you."

Scoring (see key in sidebar):

Necessary: 3

Financially safe: 3

Short term: 4

Emotionally safe: 5

Total: 15

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Scenario 4: The Home Down Payment

You're the best judge of your child's trustworthiness, Rebell says. If you can afford to help her with part of a down payment, do it. She's still on the hook for some 80 percent of the mortgage. That's plenty of financial responsibility for a young adult, and if things go sour, it's between her and the bank. If you can't afford to help, but you trust your daughter and can help her to lower her down payment by cosigning, you may want to consider doing so. Homes create stability and are usually good lifelong investments. You want that for your kids.

But remember, big financial decisions don't have to be black and white. You could provide all or part of a down payment, offer a loan or be a cosigner on a loan. Or a mix of all three might be smart: If a home costs $250,000, consider, for example, providing the first 10 percent ($25,000) of the down payment and loaning the next 10 percent ($25,000) at a low rate, so your daughter has the required 20 percent typically needed to avoid mortgage insurance. Then cosign the remaining 80 percent. Easing a child into financial independence can be better than throwing her into the shark pool all at once.

If you cosign, however, keep in mind that the loan will appear on your credit report as an outstanding loan obligation. If you ever want to refinance your own home or take out a home equity loan, you could have a tougher time qualifying. And if your child should miss a mortgage payment, it could hurt your credit record, too. So you may want to make sure you can afford those payments if the need should arise.

Scoring (see key in sidebar):

Necessary: 5

Financially safe: 2

Short term: 4

Emotionally safe: 4

Total: 15

Scenario 5: The Divorce Bailout

In the short term, if you can afford it, step in — especially if you have grandchildren involved. Stability is everything. Your daughter is going through enough pain, and this is a time for family to help.

But once the crisis time frame has passed, make a plan. "Can she afford that house on her own, or is she going to downsize?" Carbonaro asks. "I would absolutely help her out, but there needs to be an exit plan."

If it is possible for her to move in with you temporarily, so she can sell the house and get on her feet again, do this. Your emotional support will also be priceless. "I was divorced from my first husband and moved in with my parents for a year while I regrouped," Rebell says. "I sold the apartment we had lived in, saved a year of living expenses and moved out in a solid financial position. The bonus was the year I spent getting to know my parents as adults, and the new relationship we developed."

Savvy Ways to Send Money

Scenario 6: The New Business

Countless success stories have been seeded from parents' money. And who better to invest in than your kids? Here again, though, you come first.

Ask yourself if you can afford to lose the money you are considering lending. If you don't need the money, congrats. But that doesn't mean you should lend it or cosign a loan.

"Mom and Dad are an easy touch. Your child needs to take this plan into the marketplace and see if there are people who will lend against it," Blayney says. If it's solid enough to gain traction from independent sources, then perhaps it's OK for you to invest. If you do decide to help, make it clear to your son that you are his partner now.

Scoring (see key in sidebar):

Necessary: 3

Financially safe: 0

Short term: 0

Emotionally safe: 1

Total: 4

Scenario 7: Grad School

While college loans are an albatross for most young adults, the reality is that you don't need to pony up for educational costs right now. You can always help your child pay off those loans slowly over the coming years — without dipping too deeply into your nest egg. "Even though we could afford full tuition, we made my son take out $4,000 in student loans each year," Carbonaro says. "You want your child to have skin in the game." This is a time for him to take responsibility for his own future, and if it will be worth it financially for him to go to grad school, it will be worth it for him to find a way to finance it.

Scoring (see key in sidebar):

Necessary: 2

Financially safe: 0

Short term: 0

Emotionally safe: 5

Total: 7

How I resolved my own challenge of how to pay for my daughter's final semester of college: When she arrived home for fall break, I explained that she would need to step up and pay for it herself. I would cosign a loan, but the responsibility would be on her to find the best rate and to understand what the terms were, and to present those terms to me. Of course, we will try to help her pay off the loan eventually — but only after securing our own financial future.

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